Health and Hospital Expenditures

State and Local Backgrounders Homepage

Spending on health and hospitals includes spending on community and public health programs, government-owned hospitals, and government payments to privately owned hospitals.1 

Census counts most Medicaid spending as public welfare, but it includes some Medicaid spending under the health and hospital expenditure category.

How much do state and local governments spend on health and hospitals?

In 2018, state and local governments spent $301 billion on health and hospitals, or 9 percent of direct general spending.2 As a share of direct general state and local spending, health and hospitals combined were the fourth-largest expenditure in 2018 and roughly equal to higher education expenditures.

In 2018, 66 percent of health and hospital spending went to hospital services and 34 percent went to other health programs.

Hospital services include the operation of university medical schools, state-owned hospitals for people with mental illness or disabilities, public children’s hospitals, and payments to private hospitals for public services. Payments to providers under public welfare programs, such as Medicaid, are counted separately under public welfare expenditures. The Medicaid and CHIP Payment Access Commission estimates that payments to hospitals account for 13 percent of total Medicaid spending, suggesting that the portion of Medicaid spending that Census counts under the health and hospitals classification is likely relatively small.

Health program expenditures include services such as mental health and substance abuse programs, county health department inspections, water and air quality regulation, and health inspections.

In 2018, 97 percent of health and hospital expenditures were for operational costs, such as public health administration, community health programs, public hospital operations, and regulatory services. The remaining 3 percent went to capital outlays such as hospital construction.

How does state spending differ from local spending and what does the federal government contribute?

Spending on health and hospitals is split roughly evenly between state and local governments. In 2018, states provided 44 percent of health and hospital spending while local governments provided 56 percent.

As a result, state and local governments spend roughly the same proportion of their budgets directly on health and hospitals. In 2018, 9 percent of state direct spending went to health and hospitals versus 10 percent of local direct spending. Among levels of local governments in 2017 (the most recent year that we have data for these levels of government), spending on health and hospitals accounted for the largest share of county budgets (20 percent) and special district budgets (36 percent). Special districts are typically dedicated to one or a few services, so the relatively high percentage of spending on health and hospitals is representative of the number of these districts dedicated specifically to health and hospital services (mostly the latter) and not health and hospital spending within a larger special district budget.

However, states vary considerably in their distribution of state and local direct health and hospital spending. In Indiana, for example, only 13 percent of direct health and hospital spending occurred at the state level in 2018. In contrast, in Vermont the state was responsible for 98 percent of direct health and hospital spending.

Overall, 86 percent of total health and hospital spending ($260 billion) was funded by state and local governments in 2018. The remaining 14 percent ($41 billion) was funded by federal grants to state and local governments. However, given the decline in state and local tax revenue resulting from the COVID-19 pandemic, and the large amount of federal transfers for health-related expenditures approved by Congress in both the CARES Act and the American Rescue Plan, these numbers will probably look very different for fiscal years 2020 and 2021. It will be a few years until Census publishes that data, though.

How much do hospital charges contribute to health and hospital spending?

The Census data on health and hospital expenditures include revenue from both governments and charges related to health and hospitals, such as when a public hospital charges patients, private insurance companies, and public insurance programs (such as Medicare) for care or other services (e.g., a cafeteria) plus services such as the care and treatment of the handicapped.

The share of state and local health and hospital spending from charges has grown considerably over the past 40-plus years. In 1977, charges accounted for 37 percent of state and local health and hospital expenditures. But since 2011, charges have accounted for a majority of this spending. Charges were 56 percent of state and local health and hospital expenditures in 2018.

How has health and hospital spending changed over time?

In 2018 inflation-adjusted dollars, state and local governments spending on health and hospitals increased from $95 billion in 1977 to $301 billion in 2018, for an increase of 215 percent. For comparison, spending growth for all other combined expenditures was 180 percent over the same period.

Much of this spending increase was driven by the rising costs of health care, and the related increase in charges as a share of state and local spending on health and hospitals. Notably, the growth in health and hospital expenditures roughly tracked the growth for non-health and hospital expenditures until 2006, but since then the former has seen far more spending growth than the latter.

However, despite the spending growth, health and hospital spending as a share of state and local direct general expenditures has not changed significantly over the period. In 1977, 8 percent of state and local spending went to health and hospitals compared with 9 percent in 2018.

How and why does spending differ across states?

Across the US, state and local governments spent $922 per capita on health and hospitals in 2018. Wyoming spent the most on health and hospitals at $2,828 per capita, followed by South Carolina ($1,644), the District of Columbia ($1,564), Mississippi ($1,487), and Iowa ($1,470). New Hampshire spent the least per capita at $169, followed by Arizona ($211), Rhode Island ($286), North Dakota ($318), and Maine ($342).

Data: View and download each state's per capita spending by spending category

Health and hospital spending may vary by state for many reasons, including higher utilization of health services or hospital readmission rates among some populations; higher regional health care costs; the number of government-owned hospital beds; or other factors that may require additional investment in public health services to address, such as pollution or mental health and substance abuse problems.

 

Interactive Data Tools

State and Local Finance Data: Exploring the Census of Governments

State Fiscal Briefs

What everyone should know about their state’s budget

Further Reading

Health of the States: How U.S. States Compare in Health Status and the Factors that Shape Health

Steven H. Woolf, Laudan Y. Aron, Derek Chapman, Lisa Dubay, Emily Zimmerman, Lauren C. Snellings, Lindsey Hall, Amber D. Haley, Nikhil Holla, Christopher Lowenstein, and Timothy A. Waidmann (2016)

Assessing Fiscal Capacities of States: A Representative Revenue System–Representative Expenditure System Approach, Fiscal Year 2012

Tracy Gordon, Richard Auxier, and John Iselin (2016)

 

Notes
1 Data are from census expenditure categories E32, E36, F32, F36, G32, G36, K32, and K36.

2 Direct general spending refers to all direct spending (or spending excluding transfers to other governments) except spending specially enumerated as utility, liquor store, employee-retirement, or insurance trust. Unless otherwise noted, all data are from the US Census Bureau Annual Survey of State and Local Government Finances, 1977-2018 (compiled by the Urban Institute via State and Local Finance Data: Exploring the Census of Governments; accessed 28-May-2021 04:33), https://state-local-finance-data.taxpolicycenter.org. The census recognizes five types of local government in addition to state government: counties, municipalities, townships, special districts (e.g., a water and sewer authority), and school districts. All dates in sections about expenditures reference the fiscal year unless explicitly stated otherwise.